Mastering Accounting Compliance: Critical Rules Every Business Owner Must Know

Running a business in India doesn’t just mean focusing on sales and growth—you also need to keep your financial records in line with the law. Accounting rules in India are not just about numbers; they are about building transparency, trust, and legal compliance.

India’s accounting system is mainly governed by the Companies Act, 2013 (administered by the Ministry of Corporate Affairs, MCA). The MCA prescribes mandatory accounting standards and oversees company financial reporting. The Institute of Chartered Accountants of India (ICAI) sets detailed accounting and auditing standards, while the National Financial Reporting Authority (NFRA) monitors compliance, especially for larger companies.

Mandatory Accounting Standards:

Certain companies must follow Indian Accounting Standards (Ind AS), which are similar to global accounting rules. These are mandatory for:

• Listed companies or large unlisted companies with net worth above ₹500 crore.

• Mid-sized unlisted companies with net worth between ₹250–500 crore.

• Large financial sector companies such as NBFCs with net worth over ₹500 crore.

Once applicable, Ind AS must be followed consistently in both standalone and consolidated financial statements. Smaller companies generally follow Indian GAAP (Generally Accepted Accounting Principles), which is simpler.

Statutory Books and Records

The Companies Act requires every company to maintain detailed books of account at its registered office (or notified location). These records must comprehensively capture:

• Money receipts and payments: all sums received and expended by the company.

• Sales and purchases: records of all goods and services bought or sold.

• Assets and liabilities: a ledger of what the company owns and owes.

• Cost records: where applicable (e.g. manufacturing firms as per Sec. 148).

Companies may keep accounts electronically subject to audit-readiness and must preserve all books and supporting vouchers for at least 8 years from the end of each financial year. Any change of book-keeping location must be reported to the Registrar of Companies. In addition to accounts ledgers, companies must maintain various statutory registers and minutes of meetings as prescribed by law.

Audit Requirements and Thresholds

Audits ensure your accounts are credible. Types of audits include:

• Statutory audit: Every company (public or private) must have its annual accounts audited by a qualified CA. The first auditor is appointed by the Board within 30 days of incorporation, and thereafter auditors are appointed for a 5-year term (ratified each AGM). Even micro and small companies have no blanket exemption from audit (any “small company” or OPC still must audit accounts, though some procedural filings are relaxed).

• Auditor rotation: Listed companies, and unlisted companies above specified paid-up capital (e.g. ≥ ₹50 crore) must rotate individual auditors or audit firms every few years.

• Internal audit: Section 138 mandates internal audit for larger companies. For example, internal audit is compulsory for (a) all listed companies, (b) unlisted public companies with turnover ≥ ₹200 cr or borrowings ≥ ₹100 cr, and (c) private companies with the same turnover or borrowing thresholds.

• Secretarial audit: Under Section 204, listed companies and public companies meeting net-worth or turnover triggers: paid-up capital ≥ ₹50 cr or turnover ≥ ₹250 cr must have a CS conduct a secretarial audit.

• Tax audit (Income Tax): Under the Income-tax Act, businesses and professionals whose turnover or receipts exceed specified limits must get their books audited for tax purposes.

GST Accounting and Compliance

If your annual turnover is above ₹20 lakh (₹10 lakh in special states), GST registration is mandatory. Once registered, you must:

• Issue GST-compliant invoices.

• File regular GST returns.

• Reconcile input tax credit.

Failure to comply can lead to heavy penalties and cancellation of GST registration.

To know more about GST click here.

Accounting Compliance and Tax Compliance:

Your accounts are also tied to tax rules. Some key requirements include:

• Maintaining books of accounts: Businesses and professionals must maintain proper books of account if their turnover or income crosses prescribed limits. Failure to do so can attract penalties of up to ₹25,000 under Section 271A of the Income-tax Act.

• Tax Audit: if turnover exceeds ₹1 crore (business) or ₹50 lakh (professionals).

• Advance Tax & TDS obligations: businesses must pay tax in instalments and deduct TDS on specified payments.

• Depreciation & Expenses: must follow income-tax rules, not just company accounts.

• Income Tax Return Filing – Every company must file its annual return (usually ITR 6).

• Non-compliance leads to penalties ranging from fines to disallowance of expenses.

Penalties for Non-Compliance

Penalties under Indian law can be severe for accounting lapses:

• Companies Act penalties: Directors can be fined for not maintaining or filing accounts. For example, failure to prepare/approve financial statements or to file them with the ROC can lead to daily fines up to ₹1000 per day and prosecution.

Conclusion:

For business owners, accounting compliance is not optional—it’s the backbone of sustainable growth. Keeping accurate books, meeting audit requirements, and filing returns on time not only keeps you on the right side of the law but also builds credibility with banks, investors, and partners.

Tip for business owners: Engage a qualified Chartered Accountant (CA) or accounting team early. This will save you time, reduce errors, and prevent penalties.

At Prolead, we help you stay compliant while you focus on growing your business. We provide end-to-end services under the Companies Act, Income-tax Act, and GST law, ensuring that your business remains compliant, efficient, and ready for growth.